Wednesday February 18, 02:03 PM
EU moves against six states over deficits
By Paul Harrington
BRUSSELS (AFP) - The European Commission took the first move on Wednesday to tackle swelling budget deficits in six EU states, including France, Ireland and Spain, as the economic crisis burns through public coffers.
But the EU executive arm said it would use the "full flexibility" available given the "exceptional circumstances" arising from the US-born crisis that has hit bank lending and consumer spending, putting jobs and businesses at risk.
France, Greece, Ireland, Latvia, Malta and Spain were named as the countries which have failed to keep their public deficits to under three percent of gross domestic product in 2008 as required by the EU's Stability and Growth Pact.
Therefore the commission "adopted excessive deficit reports" on each of the six, the first move toward seeking more fiscal rigour with the threat of penalties for laggards.
The worst deficit culprit was Ireland which, after a small budget surplus in 2007, registered an estimated 6.3 percent deficit last year, projected to widen further to 9.5 percent in 2009.
France's 2008 deficit was estimated at 3.2 percent, just breaching the three percent barrier. However that deficit is expected to bulge to 4.4 percent this year before coming back into line in 2011.
In Paris a finance ministry spokesman said France insisted that its economic priority would be to promote recovery.
"The Commission is keeping an eye on what's going on, that's its job, but France reaffirms that the priority is restarting financial networks and boosting economic recovery," he told AFP.
The key question is how much time the commission will decide to give the six countries concerned to get back into budgetary line when it formally opens excessive deficit procedures next month.
EU Economic Affairs Commissioner Joaquin Almunia said Wednesday that France and Spain should work to restore budget discipline in 2010.
"For France and Spain we consider that 2009 is a year for (economic) relaunch but we think that in 2010 (budgetary) consolidation should begin," Almunia said.
The late 2009-early 2010 period should mark the start of the progress out of the crisis, he added.
In the case of Ireland and Greece, where the budget deficit was above three percent in 2007 and 2008, the EU's executive arm is calling for efforts straight away to avoid a bigger crisis.
"We're asking them to step up the consolidation now in 2009 because the markets are putting very strong pressure on them," Almunia told a press conference after the commission's findings were released.
He was referring to the rising interest rates Dublin and Athens are facing to borrow money
The EU's stability pact allows governments to breach the budget deficit limit in case of crises, but only on a temporary and exceptional basis with the deficit remaining close to three percent.
The issue is further complicated given that many more of the EU's 27 countries are set to see their deficits balloon above the bloc's three percent limit this year as they seek to shore up their economies as the worst economic crash in decades lowers tax revenues and increases government bailouts and nationalisations.
"As a result of the sharp global financial and economic crisis, EU public finances are under stress," said Almunia.
"In all cases the commission will use the full flexibility embedded in the revised Stability and Growth Pact when considering the next steps," he added.
The taking of the first step in the deficit procedure had been expected due to the growing recession in Europe.
Almunia also voiced concern at the volatility of the currencies of some eastern European EU nations, several of which have fallen sharply in recent days amid fears of capital flight.
I am... concerned by the evolution of the volatility in exchange rates of some EU members that have floating regimes," he said.
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